Massive harm, no recompense: regulatory failure

The Financial Conduct Authority (FCA) acted against Indigo Michael’s abusive business practices in July and December 2022 resulting in the firm’s insolvency in January 2023.

Indigo Michael Limited (IML) traded as SafetyNet. Our research into SafetyNet led Debt Hacker to estimate (see calculations below) that:

  • It over-charged 900,000 borrowers £293m between 2016 and July 2022

  • Up to 30% (of these 900,000) may have had their financial lives ruined by being unable to meet SafetyNet’s unaffordable repayments and exiting their loan in default

  • SafetyNet may have placed non-payment markers on 270,000 customers’ credit files, thus impairing their credit scores for six years

Debt Hacker submitted this supplementary evidence to the All Party Parliamentary Group (APPG) on Personal Banking and Fairer Financial Services in 2022. It followed:

  • The University of Edinburgh’s 2020 independent report, shared with the FCA, which showed irresponsible lending practices were rife, a lack of attention to customers’ ability to repay, and customers locked into cycles of continuous debt, with horrifying testimonies about the effect of the firm’s business practices

  • The Financial Ombudsman (FOS) informing Debt Hacker: “We have published our quarterly complaints data…running account credit was the product with the highest uphold rate for the quarter (80%)...most of the complaints we receive about running account credit are against Indigo Michael”

Clearly a business with an 80% uphold rate was failing to place the “fair treatment of consumers at the heart of their business model.”

Workings out

  • £293m is the difference between the actual interest IML earned and declared in its published, audited accounts for each of the 6 years from 2016-2022, less the interest if it had been charged at 68.7% APR (the firm’s advertised representative APR) on its audited net loan book.

  • The 30% default rate is the amount of receivables which IML wrote off each year, ie 30% could not be recovered. We assume this is broadly representative across its entire customer base (even though individual borrowers will vary in amount).

  • 30% of 900,000 customers is 270,000

When the firm entered administration we called for the FCA to require customers to be recompensed if they had been charged interest when within its contractual interest-free periods, granted facilities without proper affordability assessments, or their credit scores were destroyed by its business practices.

Debt Hacker also called for the FCA to establish whether the firm’s directors are “fit and proper” to move to any other FCA-licensed lender. It is inconceivable that IML had “systems and processes in place to make sure they meet all regulatory responsibilities and treat customers fairly” nor that IML was “able to demonstrate that fair treatment of customers is at the heart of their business model.”

The FCA recognised the misuse of Continuous Payment Authorities (CPAs) by IML and the harm inflicted on victims. It should have secured recompense for the many victims whose financial lives were ruined.

IML distributed more than £50m in profit to shareholders in 2022, a bumper payout made AFTER Debt Hacker had already alerted its directors to their abusive business practices (which the FCA went on to ban) and the need to recompense customers.

Yet the FCA did not ensure recompense to victims. This was a failure of the then Government’s financial inclusion agenda, and suggested that:

  • The FCA has limited interest in securing reparations to protect “consumers from the harm caused by bad conduct in financial services.”

  • Its “general supervisory approach” allows licensed firms to ignore the FCA’s rulebook

  • Directors of licensed firms can ignore their obligations to “place the fair treatment of consumers at the heart of their business model” by putting in place “systems and procedures to ensure a fair outcome for consumers”, as there is little prospect of any sanction by the FCA for breaches of its rulebook

What next?

  • More about the SafetyNet (Indigo Michael Ltd) directors, including serial entrepreneur Iain McKenzie.

  • How we stood up to aggressive bullying from SafetyNet’s top City lawyers whose threats of injunctions and strategic legal actions against public participation (SLAPPs) were designed to intimidate and silence us.